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Tax Benefits

Alpacas and Mini-Llamas Are Rare

Why do people worldwide call alpacas the world's finest livestock investment? For any investment to be valuable, it must possess qualities that make it desirable. Precious gems and metals are scarce, real estate provides shelter and natural resources, oil provides energy, bonds earn interest, and stocks are supposed to grow and increase in value. Alpaca investment shares many of these investment attributes. Alpacas are in strong demand worldwide, and people pay high prices for them. They are scarce, unique, and the textiles produced from their fiber are known in the fashion centers of Paris, Milan, and Tokyo. In 2006 in the USA, there were only 100,000 registered alpacas as compto the 5 million alpacas in South America. Miniature llamas are even rarer; only about 600 registered mini-llamas in the USA!

Note: Even livestock investments are not recession-proof. It’s best to have a tax attorney associated with a top-rated San Diego accounting firms to handle your financial budgeting.

There are excellent profit opportunities and tax advantages available to alpaca breeders. Historically, the alpaca's value has sustained ancient cultures, such as the Incas of Peru, and today alpacas are the sustaining economic force for millions of South Americans.

Tax Advantages

There are two ways of investing in alpacas. The active, or hands-on method, where you actively raise your animals yourself for profit, and the passive, or agisted method, where you invest in the animals which are boarding on someone else's ranch.

As a breeder, you can depreciate a male or female alpaca used for breeding purposes over a five-year period. Breeding animals are considered a capitol asset. Furthermore, the first year that the capitol asset is acquired, there is a maximum of $18,500, which can be used as a business expense item. Income derived from the sale of capitol assets is usually taxed at a lower rate than that of income derived from other sources, such as regular earnings. Any expenses, which you incur, such as veterinary care, feed bills, or any other costs associated with the raising of your alpacas, are deductible. As an active breeder there is also the ability to depreciate tangible property, such as barns and fences, as well as breeding stock to be considered.

Offset Taxable Income. Your alpaca farm may generate taxable losses that may be used to offset taxable income from other sources. Alpaca breeding is an excellent way to accomplish tax-deferred wealth building. The small farmer or investor can purchase several alpacas and allow the herd to grow without paying income taxes on the increased value of that herd.

Agisting Benefits. If you agist your alpacas, your tax advantages will vary from that of an active owner, but they will still be very attractive. The main difference is that all of your expenses incurred in the raising of the alpacas can used as deductions against your profit, until such time as you sell the alpacas.

This is only a short, and by no means complete, summary of the tax advantages available to you as an alpaca breeder. The IRS publication #225, The Farmers Tax Guide, is very helpful. We strongly recommend that you consult an accountant or tax advisor, who is familiar with breeding livestock and farming issues.

You may want to agist, or board, your alpacas with an established alpaca owner for a while. The fees are reasonable, usually only a few dollars per day and, of course, this would be a tax deductible expense. This will also give you the option of purchasing one alpaca at a time. Alpacas are herd animals and need to live with other alpacas, as they can actually become very stressed if separated. That is why we strongly suggest the purchase of at least two if you are going to take them home to raise yourself.

Many spinners and weavers will purchase a neutered male alpaca, so as to have an available source of the world's finest fiber. Some people may want to purchase one or two animals as a way to accumulate the funds required for the college education of their children. The purchase of just two breeding females is a good start toward that end. Given a ten year period, those two original females can very conservatively grow into a herd of thirty or more alpacas! Of course, you may want to purchase a male to use as a herd sire, or you can take advantage of the many herd sire animals available for a stud fee. Again, if you don’t wish to take on the task of breeding your own animals agistment would be an excellent option for you.

The purchase of alpacas for investment is always a personal decision, and you should investigate fully the many options open to you. There is always a risk involved in the purchase of any kind of livestock, and alpacas are no exception.

They are however, extremely hardy and easy-to-raise, and they are 100% insurable for mortality and theft. Actually, we don’t know of a better animal to invest your money or your love in!

Profitibility

Is it profitable to raise and market alpacas? That is often the bottom line question. It is said that "Alpacas are the world’s finest livestock investment" for a very good reason. The worldwide demand for alpacas and their fiber has been strong and has continued to increase yearly. The demand for the animals exceeds the supply. They produce only one cria a year, so the population of alpacas increases slowly. Importation from South America is limited by difficulty of regulations and quarantine, cost, and the strict guidelines imposed by the Alpaca Registry. A situation where demand is high, coupled with a restricted supply creates a market for alpacas where prices are stable. It is commonplace for the female offspring of an alpaca to sell for the same price as the investor paid for the dam. Male offspring, if they are of herdsire quality, can bring several thousands of dollars more than the dam. The alpaca business is not a get-rich-quick business. It takes work and dedication just like any other business, but yes there is profit to be made in this wonderful business. By the way, can you think of another business where your investment can be one hundred percent insured?

Stable Prices. Will alpaca prices stay at their current levels? It is expected that prices will be stable for many more years. We in the industry are working to improve our textile market. As the demand for more fiber increases, the demand for more alpacas will also increase. We are confident that the alpaca industry will remain healthy and viable.

Is the financial gain the only reason that people invest in alpacas? Typically, people invest in alpacas for two reasons. One is the financial investment, and the other is for the lifestyle investment. There is not another business that we know of that can offer such a good return on your investment while affording a lifestyle that is so satisfying to the soul. Raising alpacas is not just the investment of a lifetime, it’s an investment in a lifestyle in which your whole family can participate.

Is it for everyone? No it isn’t for everyone, but if you think it is something that you would enjoy, if you love the animals and want to be part of one of the most dynamic businesses in the world, but still be able to keep in touch with the basics of life, then it could be for you.

Tax Deferred Wealth Building

Alpaca breeding also allows for wealth building, while deferring tax on your investment's increased value. A small farmer can purchase several alpacas, and then allow their herd to grow over time without paying tax on its increased size and value. If the same amount of money was invested in a Certificate of Deposit, any interest earned would be currently taxable. In addition, the C.D. could not be depreciated, thereby offsetting the amount of tax due.

IRS Code Section 179 Deduction

This deduction is available every year when you purchase certain
assets, assuming that you have not used the deduction on a computer or
some other qualifying asset. Many people do not understand that you can
use this deduction to write off your purchase of up to $24,000 worth of
alpacas annually. This following example takes into consideration IRS code
section 179.

Item

Amount

Purchase price one or more alpacas

$24,000

Section 179 tax deduction

(24,000)

Tax savings 50% (tax bracket 50%)

(12,000)

Actual after tax cost out of pocket

$12,000

If you are in the 50% tax bracket, the government will
reduce your taxes by 50% of the cost of $24,000 worth of alpacas each
year. This deduction is available for all taxpayers. To see how much this
will benefit you, calculate your tax bracket and multiply it by the amount
of your purchase up to $24,000. The amount of this deduction is scheduled
to go higher in future years.

An Additional 30% First Year Depreciation

There are important changes for alpaca breeders in the recently-enacted Job Creation and Worker Assistance Act of 2002. In an effort to stimulate the economy, Congress is giving taxpayers an extra 30% first-year depreciation write-off for most new capital assets (other than buildings) acquired after September 10, 2001, and before September 11, 2004, and placed in service before 2005. In effect, this additional write-off means that you can recover more of the cost of a business asset, such as an alpaca, in the year you place it in service.

 

Able Oaks Ranch 6167 FM1857 S. Rusk TX 75785 | 903-530-1009